Since March last year, the Federal Reserve has ended the era of zero interest rates for four years, opened the path of interest rate hikes, and has raised interest rates for more than a year.
In its May meeting statement, the Fed deleted a line from its previous statement that "the committee anticipates that some additional policy tightening may be appropriate." That is widely expected to put the Fed on hold at its June meeting. Because the rate hike is in line with market expectations, and after the rate hike has reached the terminal interest rate zone given by Federal Reserve officials in 2023, the market expects that the rate hike channel of more than a year will come to an end. And with the banking problems brought about by the collapse of Silicon Valley banks in an instant, the market has returned to the expectation of the Fed rate cut!
Citic Securities Research report believes that from the data of banks in the United States, the assets and liabilities of the United States banking industry are facing greater pressure, and it is expected that the continuous deposit loss problem will further increase the operating pressure and liquidity pressure of banks. At the same time, the commercial real estate loans held by banks have a large risk exposure, and high unrealized losses on securities investment are common problems. However, considering the relatively healthy development of U.S. financial markets after the 2008 financial crisis and the more experienced response of regulators, the probability of systemic risks occurring in the U.S. banking industry this round is low. However, the widespread stress in the banking sector may push credit tightening faster, and thus the labor market may weaken rapidly in the future, so there is a probability that the Fed will cut interest rates this year.
Citic Securities believes that in the context of deposit loss, deposit derivative ability is weakened, the future of the United States credit crunch is worrying, it is expected that its negative impact on the economy will gradually emerge. It is expected that the pressure of the US banking industry will continue, and the probability that the Federal Reserve will not raise interest rates in June and beyond is high. The credit crunch may lead to a rapid weakening of the labor market, and the three-month average of new non-farm employment may reach about 100,000 in the fourth quarter of this year, so there is a probability that the Federal Reserve will cut interest rates this year, or the interest rate will be cut in the fourth quarter of this year or the first quarter of next year.
The Fed's Kashkari also warned that while the worst of the stress in the banking sector appears to be over, history suggests that more problems cannot be ruled out and it is too early to declare everything resolved. Still, Kashkari said actions by the Fed and other regulators have curbed the surge in bank problems that erupted in March. With price pressures now abating and great uncertainty about how the credit squeeze caused by the banking crisis in March will affect the outlook, many Fed officials have signaled that it is time to pause rate hikes and assess the economy's response to recent events. Kashkari supported a pause in rate hikes, but said "I don't want to declare [the rate hike cycle] complete" because it's entirely possible that future data will call for further hikes.
However, a survey released on May 22 by the National Association for Business Economics (NABE) showed economists now believe the Fed will cut its target policy rate in the first quarter of next year. In the last survey, conducted in February, respondents expected the Fed to cut rates in the fourth quarter of this year. The economists surveyed raised their forecasts for 2023 inflation, which now stands at 3.3 percent, up from 3 percent expected in the previous survey.
